BEEZ: Not Your Average ESG ETF. Should You Buy?
The Honeytree U.S. Equity ETF (NASDAQ:BEEZ) is an interesting new ESG (environmental, social, and corporate governance) ETF that just launched in November. With a concentrated and actively-managed portfolio of distinctive holdings, it’s not your average ESG ETF.
While BEEZ has a differentiated and highly-rated portfolio, the downside is that it’s relatively expensive, especially for a fund with a yet-to-be-proven strategy. Thus, I’m neutral on BEEZ, with the caveat that it could be a viable option for investors who are specifically interested in choosing ESG products and looking to diversify their portfolios beyond typical ESG funds.
What is the BEEZ ETF’s Strategy?
The new BEEZ ETF just launched on November 3rd and is the brainchild of Honeytree Investment Management, a Canadian asset manager. So far, the ETF has just $2.4 million in AUM, but it is still early days, as it has only been around for a month.
BEEZ is an actively-managed ETF focused on “responsible growth.” According to Honeytree, the fund managers identify “companies with long-term growth potential based on the strength of their governance and leadership, their commitment to innovation, strong fundamentals, and a strategic focus on making a net positive impact on the world.”
It’s hard to argue with these criteria, although some of them seem a bit subjective, as most companies would argue that they make a positive impact on the world.
Differentiated Holdings
BEEZ holds 25 stocks, and its top 10 holdings account for 42.2% of the fund. Below, you’ll find an overview of the BEEZ ETF’s top 10 holdings using TipRanks’ holdings tool.
BEEZ is interesting in that its holdings aren’t limited to just the usual suspects that one often finds in these types of ESG funds (mega-cap tech stocks). Instead, BEEZ owns a diverse mix of more under-the-radar companies that it feels are generating long-term, responsible growth.
So, how does BEEZ select the stocks in its portfolio? The fund begins with an initial universe of 2,900 U.S.-listed equities. As an ESG-focused fund, it predictably screens out companies in industries including weapons, tobacco, and fossil fuels.
It then uses a set of 25 quantitative screens (including screens for revenue growth, dividend growth, and more) to narrow this list down to 50 “highly liquid, mid- to large-cap profitable stocks” with market caps over $5 billion.
Next, the fund managers use proprietary fundamental research consisting of about 45 fundamental criteria to narrow the list down further. It then adds in the human touch with a “deep dive” and more qualitative research, resulting in a portfolio of 25 to 30 companies.
Stocks that made the cut after this extensive screening process include top holding Universal Display (NASDAQ:OLED), which manufacturers OLED lighting for smartphones, televisions, and more; Lam Research (NASDAQ:LRCX), which provides testing, manufacturing, and cleaning equipment to the semiconductor fabrication industry, and Intuit (NASDAQ:INTU), a strong 2023 performer, which provides tax and financial management software to individuals and small businesses.
Other prominent holdings that most investors will be familiar with include Home Depot (NYSE:HD), Costco (NASDAQ:COST), and ServiceNow (NYSE:NOW).
What I like about these holdings is that they are long-term winners that have generated solid results for investors over the long run. For example, Home Depot has a total return of 428.2% over the past 10 years, while Costco has thrived through all economic environments and generated an even more impressive 693.7% total return over the same time frame.
Paint maker Sherwin-Williams (NYSE:SHW) has generated a 431.6% total return over the past decade, while animal healthcare leader Zoetis (NYSE:ZTS) has gained about 550%. Meanwhile, Lam Research has returned an incredible 1,552% over the same time horizon.
The BEEZ ETF’s holdings also stand out from the crowd in that they aren’t the usual suspects that you often find in index ESG funds, which simply screen out stocks from certain sectors and end up owning most mega-cap stocks and don’t look all that different from a run-of-the-mill total-market or technology ETF.
For example, two of the largest ESG ETFs, the Vanguard ESG U.S. Stock ETF (BATS:ESGV) and the iShares ESG Aware MSCI USA ETF (NASDAQ:ESGU) overlap significantly when it comes to their holdings, with the two funds sharing nine of the same top 10 holdings.
Note that BEEZ is also much more concentrated than these two funds. While BEEZ holds just 25 stocks, ESGV holds 1,464 and ESGU holds 287.
Stay Smart
TipRanks’ Smart Score system rates the BEEZ ETF’s portfolio highly as seven of its top 10 holdings feature Outperform-equivalent Smart Scores of 8 or above. The Smart Score is a proprietary quantitative stock scoring system created by TipRanks. It gives stocks a score from 1 to 10 based on eight market key factors. A score of 8 or above is equivalent to an Outperform rating.
The Smart Score gives Universal Display, Agilent Technologies (NYSE:A), Masco (NYSE:MAS), Home Depot, Zoetis, and Costco Outperform-equivalent Smart Scores of 8 or above.
Is BEEZ Stock a Buy, According to Analysts?
Turning to Wall Street, BEEZ earns a Moderate Buy consensus rating based on 21 Buys, six Holds, and zero Sell ratings assigned in the past three months. Nonetheless, the average BEEZ stock price target of $28 implies the ETF is trading near its fair value.
A Relatively Costly Expense Ratio
One disadvantage of BEEZ is that it is fairly expensive, with an expense ratio of 0.64%. This expense ratio means that an investor putting $10,000 into the fund will pay $64 in fees in one year. Assuming that the fund returns 5% per year going forward and maintains this expense ratio, this investor will pay $205 in fees over the course of three years.
The problem for BEEZ is that they are a newcomer in a crowded field of ESG funds. There is no shortage of ESG-focused funds investing in U.S. equities, and many of these more established incumbents have more economical expense ratios than BEEZ.
For example, the aforementioned ESGU, which has $12.9 billion in AUM, charges just 0.15%, while the aforementioned ESGV, which has $7.1 billion in AUM, charges an even lower 0.09%.
How much cheaper are these ETFs? Using the same parameters as above, an investor putting the same $10,000 into ESGU or ESGV would pay just $48 or $29, respectively, over the course of three years.
In fairness to BEEZ, it is actively managed, while these funds are passively managed, and it is a much smaller fund, which both contribute to it being more expensive.
Final Thoughts
While BEEZ features a highly-rated portfolio with a unique group of holdings, I would need to see it establish more of a track record before I’d be willing to pay its high expense ratio.
That being said, BEEZ is interesting, and it could be a worthwhile investment for ESG-focused investors who are looking for another ESG option to diversify their portfolios, thanks to its differentiated approach and exposure.
